U.S. Economy Gains Steam as 200,000 Jobs Are Added

A robust job growth number from the Labor Department came on the heels of a flurry of heartening economic news.

SHAILA DEWAN

Correction Appended

Maybe it is time to start calling the glass half full.

The United States added 200,000 new jobs last month, the Labor Department said Friday, a robust number that came on the heels of a flurry of heartening economic news. Consumer confidence has lifted, factories have stepped up production and small businesses are showing signs of life. The nation’s unemployment rate fell to 8.5 percent, its lowest level in nearly two years.

It was the sixth consecutive month that the economy showed a net gain of more than 100,000 jobs — not enough to restore employment to prerecession levels but enough, perhaps, to cheer President Obama as he enters the election year.

The sustained run of positives had economists like Markus Schomer, of PineBridge Investments, feeling much more optimistic than they did back in August, after a spring and summer of lost economic ground and a demoralizing debate over the debt ceiling.

At that time, Mr. Schomer thought, as many did, that government dysfunction was paralyzing the economy. Now, he is ratcheting up his growth forecast for 2012.

“The improving trend in the U.S. labor markets is not just a temporary blip, but seems to be something quite sustainable,” he said, adding that the improvement had come despite continued Washington gridlock.

Among the pieces of good news in Friday’s report: the drop in the jobless rate came largely from real gains, not from discouraged workers giving up the job hunt. The new jobs were spread broadly across industries, with transportation and warehousing, retail, manufacturing and restaurants all hiring.

In addition, average wages in private industry ticked up by 4 cents an hour, though over the year wages have not kept pace with inflation. And government downsizing, which has been a drag on the jobs numbers, slowed in December, with only 12,000 public jobs lost. The private sector added 212,000 jobs.

In another positive sign, the unemployment rate seemed to be dropping at a faster rate than the number of new jobs would imply. This is perhaps because new businesses and the newly self-employed are less likely to be counted in the Labor Department’s survey of businesses, from which the job numbers are drawn, than in its survey of households, from which the unemployment rate is calculated.

Economists continued to warn of potential dangers ahead, including disaster in the euro zone, increased tensions with Iran leading to higher gas prices, and the expiration of the Bush tax cuts. Congress may yet decline to continue extensions of the payroll tax break and unemployment benefits that have bolstered consumer spending. Money, in the form of loans, is still hard to come by, and home prices have continued to fall.

There is also a sense of having been here before, since hopes were similarly buoyed by good news last year at this time. Those hopes, Mr. Schomer pointed out, were soon dashed by the earthquake in Japan. “I’m a little bit concerned that Iran could be this year’s Japan,” he said.

Still, context is everything. The same modest upward trends that a few months ago were dismissed as far too anemic to do much are now being greeted with tentative praise. “People were very much thinking that the sky was falling,” said Tom Porcelli, an economist at RBC Capital Markets. “It’s no small victory that we’re up here, even with all these headwinds.”

Economists ventured to suggest that the good news and consumer confidence might feed off each other, leading to further increases in spending that, they hoped, would be followed by the wage increases necessary to sustain that spending.

Bullish types were quick to trumpet the American economy’s resilience. “This is the real thing,” said Ian Shepherdson of High Frequency Economics. “This is finally the economy throwing off the shackles of the credit crunch.”

The Labor Department numbers were foreshadowed Thursday in a report by ADP, the payroll processing company, that showed a whopping gain of 325,000 private-sector jobs in December. ADP’s reports do not always correlate with the Labor Department’s findings, but they can provide additional insight. Diane Swonk, an economist with Mesirow Financial, said most of the new jobs in the ADP report were at small businesses and that generally only newer small businesses use a payroll company.

“It’s one of those things where you look at that and say, ‘That would be really cool if that continues,’ ” Ms. Swonk said. “It’s not just small business — it’s new business formation.”

Other factors, like seasonal adjustment, could be making the economy look better than it is. Seasonal adjustments are calculated based on the patterns of recent years. Because the recession began in December 2007, a drop-off at that time of year is now part of the pattern, and anything else looks better by comparison.

The seasonal adjustments may not wholly account for trends like online shopping, which increased hiring of couriers and messengers by 42,000, a gain that economists expect to be reversed now that the holiday season has ended.

But there is more to the good news than statistical flukes, said Ellen Zentner, an economist with Nomura, pointing to the big jump in consumer confidence in December. “People do not feel more upbeat for no reason,” she said.

This article has been revised to reflect the following correction: Because of an editing error, an earlier version of this article, and an e-mail alert, misstated the unemployment figure for November. Although it was initially given a month ago as 8.6 percent, it was revised Friday to 8.7 percent.

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